The Tax Cuts and Jobs Act of 2017 (the new tax law) was signed into law by President Trump on December 22, 2017. Some of the changes from the law go into effect on January 1, 2018 and will affect the tax filings for the 2018 taxable year. Notable changes that will affect divorcing spouses and parents are as follows:
No more claiming your kids as tax deductions. Effective for the 2018 tax year, parents can no long claim their children as dependents for the purpose of deducting them on their taxes. This change will certainly modify divorce orders and agreements as parents no longer will need to agree about who will claim the children on their taxes each year. However, while Congress has taken away the ability for parents to claim your children on their taxes, it did double the child tax credit from $1000 per child to $2000 and allow parents to alternate this deduction for children each year. All divorce agreements and orders after January 1, 2018 should contain language for how parents will claim the child tax credit. Congress also allows all taxpayers earning up to $400,000 to claim the child tax credit, an increase from the prior cutoff income level of $110,000.
Alimony payments are no longer deductible by the payor. Beginning with the 2019 tax year, for all divorce agreements signed after December 31, 2018 and later, those who pay alimony can no longer deduct alimony as an itemized deduction. Those receiving alimony no longer have to claim alimony as income and will not be taxed on the payment of alimony to them. This is a significant change. According to the United States Census Bureau, 243,000 people received alimony in 2017. This law change will speculatively could impact divorce negotiations with couples arguing about whether alimony should be paid when there is no longer a tax benefit to the payor. It appears that the IRS will allow all ex-spouses who modify their alimony to follow the 2017 tax law in claiming alimony as a deduction for those that pay it and having those that receive alimony claim it as income so long as their agreements or orders specifically state that they wish to follow the old tax law and the decree or agreement was made before December 31, 2018.
The new tax law eliminates many itemized deductions. Starting with the 2018 tax year, the new law maintains deductions for charitable contributions, retirement and student loan interest but eliminates other deductions. The law limits how much a taxpayer can deduct from property taxes as well. However, Congress has doubled the standard deduction for individuals from $6,350 to $12,000 and for married couples from $12,700 to $24,000.
Parents can use 529 education plans in creative ways. The new law allows parents to use up to $10,000 per year per child in funds in a 529 educational accounts for tuition at private and religious schools from kindergarten through 12th grade.
Overall, the new tax law promises to increase wages by lowering tax rates. Congress represents that you should see an increase in your paycheck by February 2018 because of the lower tax rates. This blog is for information purposes only and does not take the place of obtaining financial advice from a qualified CPA or financial planner. For more information please see the following articles: https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968 and https://www.nytimes.com/2017/12/16/your-money/tax-plan-changes.html.